Marvell Technology Group Ltd. Reports Second Quarter of Fiscal Year 2020 Financial Results

29 August 2019

SANTA CLARA, Calif., Aug. 29, 2019 /PRNewswire/ -- Marvell Technology Group Ltd. (NASDAQ: MRVL), a leader in infrastructure semiconductor solutions, today reported financial results for the second quarter of fiscal year 2020. Revenue for the second quarter of fiscal 2020 was $657 million, which exceeded the midpoint of the Company's guidance provided on May 30, 2019.

GAAP net loss for the second quarter of fiscal 2020 was $(57) million, or $(0.09) per diluted share. Non-GAAP net income for the second quarter of fiscal 2020 was $110 million, or $0.16 per diluted share. Cash flow from operations for the second quarter was $73 million.

"Marvell delivered solid second quarter results with revenue above the mid-point of our guidance and we fully achieved the operating expense reductions we had outlined last year, two quarters ahead of schedule," said Matt Murphy, Marvell's President and CEO. "In our third quarter, we face a worsening macro environment along with the ongoing impact from the current restrictions on shipments to Huawei, offset by a stabilizing storage business and the earlier than expected first production shipments of our 5G solutions."

Marvell's third quarter guidance takes into account the U.S. Government's export restriction on Huawei.

Third Quarter of Fiscal 2020 Financial Outlook

  • Revenue is expected to be $660 million +/- 3%.
  • GAAP gross margin is expected to be 53.5% to 54.5%.
  • Non-GAAP gross margin is expected to be 63% to 64%.
  • GAAP operating expenses are expected to be $380 million to $390 million.
  • Non-GAAP operating expenses are expected to be $280 million +/- $2.5 million.
  • GAAP diluted loss per share is expected to be $(0.09) to $(0.05) per share.
  • Non-GAAP diluted income per share is expected to be $0.15 to $0.19 per share.

Conference Call

Marvell will conduct a conference call on Thursday, August 29, 2019 at 1:45 p.m. Pacific Time to discuss results for the second quarter of fiscal 2020. Interested parties may join the conference call by dialing 1-844-647-5488 or 1-615-247-0258, pass-code 1183687. The call will be webcast and can be accessed at the Marvell Investor Relations website at http://investor.marvell.com/ with a replay available following the call until Thursday, September 5, 2019.

Discussion of Non-GAAP Financial Measures

Non-GAAP financial measures exclude the effect of share-based compensation expense, amortization of the inventory fair value step up, amortization of acquired intangible assets, acquisition and divestiture-related costs, restructuring and other related charges, litigation settlement, and certain expenses and benefits that are driven primarily by discrete events that management does not consider to be directly related to Marvell's core business.

Marvell uses a non-GAAP tax rate to compute the non-GAAP tax provision. This non-GAAP tax rate is based on Marvell's estimated annual GAAP income tax forecast, adjusted to account for items excluded from GAAP income in calculating Marvell's non-GAAP income, as well as the effects of significant non-recurring and period specific tax items which vary in size and frequency. Marvell's non-GAAP tax rate is determined on an annual basis and may be adjusted during the year to take into account events that may materially affect the non-GAAP tax rate such as tax law changes; significant changes in Marvell's geographic mix of revenue and expenses; or changes to Marvell's corporate structure. For the second quarter of fiscal 2020, a non-GAAP tax rate of 4.5% has been applied to the non-GAAP financial results.

Marvell believes that the presentation of non-GAAP financial measures provide important supplemental information to management and investors regarding financial and business trends relating to Marvell's financial condition and results of operations. While Marvell uses non-GAAP financial measures as a tool to enhance its understanding of certain aspects of its financial performance, Marvell does not consider these measures to be a substitute for, or superior to, financial measures calculated in accordance with GAAP. Consistent with this approach, Marvell believes that disclosing non-GAAP financial measures to the readers of its financial statements provides such readers with useful supplemental data that, while not a substitute for GAAP financial measures, allows for greater transparency in the review of its financial and operational performance.

Externally, management believes that investors may find Marvell's non-GAAP financial measures useful in their assessment of Marvell's operating performance and the valuation of Marvell. Internally, Marvell's non-GAAP financial measures are used in the following areas:

  • Management's evaluation of Marvell's operating performance;
  • Management's establishment of internal operating budgets;
  • Management's performance comparisons with internal forecasts and targeted business models; and
  • Management's determination of the achievement and measurement of certain performance-based equity awards (adjustments may vary from award to award).

Non-GAAP financial measures have limitations in that they do not reflect all of the costs associated with the operations of Marvell's business as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of Marvell's results as reported under GAAP. Marvell expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from Marvell's non-GAAP net income should not be construed as an inference that these costs are unusual, infrequent or non-recurring.

Forward-Looking Statements under the Private Securities Litigation Reform Act of 1995

This press release contains forward-looking statements within the meaning of the federal securities laws that involve risks and uncertainties. Words such as "anticipates," "expects," "intends," "plans," "projects," "believes," "seeks," "estimates," "can," "may," "will," "would" and similar expressions identify such forward-looking statements. These statements are not guarantees of results and should not be considered as an indication of future activity or future performance. Actual events or results may differ materially from those described in this press release due to a number of risks and uncertainties, including, but not limited to: the risk that the proposed acquisitions of Aquantia, Corp. and the Application Specific Integrated Circuit (ASIC) business of GLOBALFOUNDRIES and the divestiture of Marvell's Wi-Fi Connectivity business to NXP (collectively, the "Transactions") will not be completed; the risk that the company may not realize the anticipated benefits of the Transactions; the effect of the consummation of the Transactions on the company's business relationships, operating results, and business generally; potential difficulties in employee retention as a result of the Transactions; the ability of Marvell to successfully integrate operations and product lines related to the acquisitions; the ability of Marvell to implement its plans, forecasts, and other expectations with respect to the Transactions and realize the anticipated synergies and cost savings in the time frame anticipated or at all; the impact of international conflict and economic volatility in either domestic or foreign markets including risks related to trade conflicts, bans and tariffs; the risks associated with manufacturing and selling products and customers' products outside of the United States; Marvell's ability to define, design and develop products for the 5G market; Marvell's ability to market its 5G products to Tier 1 infrastructure customers; the effects of transitioning to smaller geometry process technologies; the impact of any change in the income tax laws in jurisdictions where Marvell operates and the loss of any beneficial tax treatment that Marvell currently enjoys; the risk of downturns in the highly cyclical semiconductor industry; Marvell's dependence upon the storage and networking markets, which are highly cyclical and intensely competitive; the outcome of pending or future litigation and legal and regulatory proceedings; Marvell's dependence on a small number of customers; the impact and costs associated with changes in international financial and regulatory conditions; Marvell's ability and the ability of its customers to successfully compete in the markets in which it serves; Marvell's reliance on independent foundries and subcontractors for the manufacture, assembly and testing of its products; Marvell's ability and its customers' ability to develop new and enhanced products and the adoption of those products in the market; decreases in gross margin and results of operations in the future due to a number of factors; Marvell's ability to estimate customer demand and future sales accurately; Marvell's ability to scale its operations in response to changes in demand for existing or new products and services; risks associated with acquisition and consolidation activity in the semiconductor industry; the effects of any other potential acquisitions, divestitures or investments; Marvell's ability to protect its intellectual property;  Marvell's maintenance of an effective system of internal controls; severe financial hardship or bankruptcy of one or more of Marvell's major customers; and other risks detailed in Marvell's SEC filings from time to time. For other factors that could cause Marvell's results to vary from expectations, please see the risk factors identified in Marvell's Quarterly Report on Form 10-K for the fiscal year ended February 2, 2019 as filed with the SEC on March 28, 2019, and other factors detailed from time to time in Marvell's filings with the SEC. Marvell undertakes no obligation to revise or publicly update any forward-looking statements.

About Marvell

Marvell first revolutionized the digital storage industry by moving information at speeds never thought possible. Today, that same breakthrough innovation remains at the heart of the Company's storage, processing, networking, security and connectivity solutions. With leading intellectual property and deep system-level knowledge, Marvell's semiconductor solutions continue to transform the enterprise, cloud, automotive, industrial, and consumer markets. To learn more, visit: www.marvell.com.

Marvell® and the Marvell logo are registered trademarks of Marvell and/or its affiliates.

Marvell Technology Group Ltd.

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share amounts)





























Three Months Ended



Six Months Ended





August 3,

2019



May 4,

2019



August 4,

2018



August 3,

2019



August 4,

2018

Net revenue



$

656,568





$

662,452





$

665,310





$

1,319,020





$

1,269,941



Cost of goods sold



305,866





301,024





288,200





606,890





517,138



Gross profit



350,702





361,428





377,110





712,130





752,803

























Operating expenses:





















Research and development



266,354





266,867





216,285





533,221





393,019



Selling, general and administrative



113,990





110,005





133,701





223,995





206,014



Restructuring related charges



16,586





5,682





35,415





22,268





36,982



Total operating expenses



396,930





382,554





385,401





779,484





636,015



Operating income (loss)



(46,228)





(21,126)





(8,291)





(67,354)





116,788



Interest income



1,077





1,268





3,575





2,345





9,644



Interest expense



(20,531)





(21,203)





(15,795)





(41,734)





(16,039)



Other income (loss), net



(2,197)





(116)





(2,701)





(2,313)





(1,230)



Interest and other income (loss), net



(21,651)





(20,051)





(14,921)





(41,702)





(7,625)



Income (loss) before income taxes



(67,879)





(41,177)





(23,212)





(109,056)





109,163



Provision (benefit) for income taxes



(10,548)





7,273





(29,971)





(3,275)





(26,208)



Net income (loss)



(57,331)





(48,450)





6,759





(105,781)





135,371

























Net income (loss) per share — Basic:



$

(0.09)





$

(0.07)





$

0.01





$

(0.16)





$

0.26

























Net income (loss) per share — Diluted:



$

(0.09)





$

(0.07)





$

0.01





$

(0.16)





$

0.25

























Weighted average shares:





















Basic



663,603





658,963





552,238





661,280





524,787



Diluted



663,603





658,963





562,149





661,280





535,433



 

Marvell Technology Group Ltd.

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands)







August 3,

2019



February 2,

2019

Assets









Current assets:









Cash and cash equivalents



$

573,496





$

582,410



Accounts receivable, net



452,746





493,122



Inventories



240,421





276,005



Prepaid expenses and other current assets



37,069





43,721



Assets held for sale



597,675







Total current assets



1,901,407





1,395,258



Property and equipment, net



319,761





318,978



Goodwill



4,933,719





5,494,505



Acquired intangible assets, net



2,399,975





2,560,682



Other non-current assets



426,278





247,329



Total assets



$

9,981,140





$

10,016,752













Liabilities and Shareholders' Equity









Current liabilities:









Accounts payable



$

211,422





$

185,362



Accrued liabilities



312,987





335,509



Accrued employee compensation



90,659





115,925



Liabilities held for sale



5,604







Total current liabilities



620,672





636,796



Long-term debt



1,685,359





1,732,699



Non-current income taxes payable



49,881





59,221



Deferred tax liabilities



242,957





246,252



Other non-current liabilities



178,459





35,374



Total liabilities



2,777,328





2,710,342













Shareholders' equity:









Common shares



1,334





1,317



Additional paid-in capital



6,271,120





6,188,598



Retained earnings



931,358





1,116,495



Total shareholders' equity



7,203,812





7,306,410



Total liabilities and shareholders' equity



$

9,981,140





$

10,016,752



 

Marvell Technology Group Ltd.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)







Three Months Ended



Six Months Ended





August 3,

2019



August 4,

2018



August 3,

2019



August 4,

2018

Cash flows from operating activities:

















Net income (loss)



$

(57,331)





$

6,759





$

(105,781)





$

135,371



Adjustments to reconcile net income (loss) to net cash provided by operating activities:

















Depreciation and amortization



41,941





26,754





86,239





47,097



Share-based compensation



63,676





59,392





122,274





83,244



Amortization of acquired intangible assets



80,967





25,939





160,707





25,939



Amortization of inventory fair value adjustment associated with acquisition of Cavium







22,933









22,933



Amortization of deferred debt issuance costs and debt discounts



1,178





7,073





2,859





7,073



Restructuring related impairment charges (gain)



6,281





1,993





10,097





1,993



Other expense, net



580





2,740





2,016





3,631



Deferred income taxes



(1,982)





(22,238)





2,374





(21,414)



Changes in assets and liabilities:

















Accounts receivable



17,601





(1,356)





40,376





(48,749)



Inventories



(7,174)





4,186





8,674





6,866



Prepaid expenses and other assets



(15,997)





(5,396)





(7,993)





(19,504)



Accounts payable



24,370





(15,015)





22,497





(271)



Accrued liabilities and other non-current liabilities



(49,188)





(32,400)





(80,117)





(11,961)



Accrued employee compensation



(31,782)





(19,429)





(25,266)





(41,539)



Net cash provided by operating activities



73,140





61,935





238,956





190,709



Cash flows from investing activities:

















Purchases of available-for-sale securities







(1,499)









(14,956)



Sales of available-for-sale securities







553,623









623,896



Maturities of available-for-sale securities







59,165









187,985



Purchases of time deposits















(25,000)



Maturities of time deposits







75,000









150,000



Purchases of technology licenses



(38)





(903)





(1,522)





(1,263)



Purchases of property and equipment



(23,010)





(20,801)





(42,193)





(34,389)



Cash payment for acquisition of Cavium, net of cash and cash equivalents acquired







(2,649,465)









(2,649,465)



Other, net



(47)





1,462





(389)





(3,527)



Net cash used in investing activities



(23,095)





(1,983,418)





(44,104)





(1,766,719)



Cash flows from financing activities:

















Repurchases of common stock



(16,250)









(64,272)







Proceeds from employee stock plans



50,230





33,525





81,314





44,580



Tax withholding paid on behalf of employees for net share settlement



(32,884)





(12,883)





(61,642)





(36,776)



Dividend payments to shareholders



(39,889)





(39,383)





(79,356)





(69,181)



Payments on technology license obligations



(13,056)





(9,017)





(28,324)





(29,478)



Proceeds from issuance of debt







1,892,605









1,892,605



Principal payments of debt







(606,128)





(50,000)





(606,128)



Payment of equity and debt financing costs







(5,835)









(9,435)



Other, net



3,407









(1,486)







Net cash provided by (used in) in financing activities



(48,442)





1,252,884





(203,766)





1,186,187



Net increase (decrease) in cash and cash equivalents



1,603





(668,599)





(8,914)





(389,823)



Cash and cash equivalents at beginning of period



571,893





1,167,258





582,410





888,482



Cash and cash equivalents at end of period



$

573,496





$

498,659





$

573,496





$

498,659



 

Marvell Technology Group Ltd.

Reconciliations from GAAP to Non-GAAP (Unaudited)

(In thousands, except per share amounts)



























Three Months Ended



Six Months Ended





August 3,

2019



May 4,

2019



August 4,

2018



August 3,

2019



August 4,

2018

GAAP gross profit:



$

350,702





$

361,428





$

377,110





$

712,130





$

752,803



Special items:





















Share-based compensation



3,662





2,926





4,748





6,588





6,653



Amortization of acquired intangible assets



61,132





59,906





18,984





121,038





18,984



Other cost of goods sold (a)







450





22,933





450





22,933



Total special items



64,794





63,282





46,665





128,076





48,570



Non-GAAP gross profit



$

415,496





$

424,710





$

423,775





$

840,206





$

801,373

























GAAP gross margin



53.4

%



54.6

%



56.7

%



54.0

%



59.3

%

Non-GAAP gross margin



63.3

%



64.1

%



63.7

%



63.7

%



63.1

%



































































Total GAAP operating expenses



$

396,930





$

382,554





$

385,401





$

779,484





$

636,015



Special items:





















Share-based compensation



(60,014)





(55,672)





(68,675)





(115,686)





(90,622)



Restructuring related charges (b)



(16,585)





(5,682)





(35,415)





(22,267)





(36,982)



Amortization of acquired intangible assets



(19,835)





(19,834)





(6,955)





(39,669)





(6,955)



Other operating expenses (c)



(20,676)





(6,569)





(28,229)





(27,245)





(43,481)



Total special items



(117,110)





(87,757)





(139,274)





(204,867)





(178,040)



Total non-GAAP operating expenses



$

279,820





$

294,797





$

246,127





$

574,617





$

457,975





































































GAAP operating margin



(7.0)

%



(3.2)

%



(1.2)

%



(5.1)

%



9.2

%

Other cost of goods sold (a)



%



0.1

%



3.5

%



%



1.9

%

Share-based compensation



9.7

%



8.8

%



11.0

%



9.3

%



7.7

%

Restructuring related charges (b)



2.5

%



0.9

%



5.3

%



1.7

%



2.9

%

Amortization of acquired intangible assets



12.3

%



12.0

%



3.9

%



12.2

%



2.0

%

Other operating expenses (c)



3.2

%



1.0

%



4.2

%



2.0

%



3.3

%

Non-GAAP operating margin



20.7

%



19.6

%



26.7

%



20.1

%



27.0

%





















































































GAAP interest and other income (loss), net



$

(21,651)





$

(20,051)





$

(14,921)





$

(41,702)





$

(7,625)



Special items:





















Restructuring related items (d)



75





(338)





(121)





(263)





(1,633)



Write-off of debt issuance costs (e)







458





6,104





458





6,104



Deal costs (f)



1,009













1,009







Total special items



1,084





120





5,983





1,204





4,471



Total non-GAAP interest and other income (loss), net



$

(20,567)





$

(19,931)





$

(8,938)





$

(40,498)





$

(3,154)





































































GAAP net income (loss)



$

(57,331)





$

(48,450)





$

6,759





$

(105,781)





$

135,371



Special items:





















Other cost of goods sold (a)







450





22,933





450





22,933



Share-based compensation



63,676





58,598





73,423





122,274





97,275



Restructuring related charges in operating expenses (b)



16,585





5,682





35,415





22,267





36,982



Restructuring related items in interest and other income, net (d)



75





(338)





(121)





(263)





(1,633)



Amortization of acquired intangible assets



80,967





79,740





25,939





160,707





25,939



Write-off of debt issuance costs (e)







458





6,104





458





6,104



Deal costs in interest and other income, net (f)



1,009













1,009







Other operating expenses (c)



20,676





6,569





28,229





27,245





43,481



Pre-tax total special items



182,988





151,159





191,922





334,147





231,081



Other income tax effects and adjustments (g)



(15,728)





2,324





(36,720)





(13,404)





(39,818)



Non-GAAP net income



$

109,929





$

105,033





$

161,961





$

214,962





$

326,634





































































Weighted average shares — basic



663,603





658,963





552,238





661,280





524,787



Weighted average shares — diluted



663,603





658,963





562,149





661,280





535,433

























GAAP diluted net income (loss) per share



$

(0.09)





$

(0.07)





$

0.01





$

(0.16)





$

0.25



Non-GAAP diluted net income per share (h)



$

0.16





$

0.16





$

0.28





$

0.32





$

0.60







(a)

Other costs of goods sold includes amortization of the Cavium inventory fair value step up in 2018 as well as charges for past intellectual property licensing matters in 2019.

(b)

Restructuring related charges include employee severance, facilities related costs, and impairment of equipment and other assets.

(c)

Other operating expenses include Cavium, Aquantia, and Avera merger costs.

(d)

Interest and other income, net, includes restructuring related items such as foreign currency remeasurement associated with restructuring related accruals.

(e)

Write-off of debt issuance costs is associated with the partial term loan repayment during the three months ended May 4, 2019, as well as during the three and six months ended August 4, 2018.

(f)

Deal costs include transaction costs incurred in connection with the divestiture of the Wi-Fi Connectivity business.

(g)

Other income tax effects and adjustments relate to tax provision based on a non-GAAP income tax rate of 4.5% for the three months ended May 4, 2019 and the three and six months ended August 3, 2019, and based on a non-GAAP income tax rate of 4% for the three and six months ended August 4, 2018.

(h)

Non-GAAP diluted net income per share for the three months ended August 3, 2019 and May 4, 2019 was calculated by dividing non-GAAP net income by weighted average shares outstanding (diluted) of 675,755 shares and 671,048 shares, respectively, due to the non-GAAP net income reported in the respective period. Non-GAAP diluted net income per share for the six months ended August 3, 2019 was calculated by dividing non-GAAP net income by weighted average shares outstanding (diluted) of 673,399 shares due to the non-GAAP net income reported in the period.

 

 Marvell Technology Group Ltd.

 Outlook for the Third Quarter of Fiscal Year 2020

Reconciliations from GAAP to Non-GAAP (Unaudited)

 (In millions, except per share amounts)











Outlook for Three Months Ended

November 2, 2019

GAAP revenue

$660 +/- 3%

Special items:

Non-GAAP revenue

$660 +/- 3%





GAAP gross margin

53.5% to 54.5%

Special items:



Share-based compensation

0.3%

Amortization of acquired intangible assets

9.2%

Non-GAAP gross margin

63% to 64%





Total GAAP operating expenses

 $380 - $390

Special items:



Share-based compensation

65

Restructuring related charges

2

Amortization of acquired intangible assets

20

Other operating expenses

18

Total non-GAAP operating expenses

$280 +/- $2.5









GAAP diluted net loss per share

 $(0.09) - $(0.05)

Special items:



Share-based compensation

0.10

Amortization of acquired intangible assets

0.12

Other operating expenses

0.03

Other income tax effects and adjustments

(0.01)

Non-GAAP diluted net income per share

$0.15 - $0.19

 

Quarterly Revenue Trend (Unaudited)

(In thousands)











Three Months Ended



% Change



August 3,

2019



May 4,

2019



August 4,

2018



YoY



QoQ

Storage (1)

$

274,905





$

278,667





$

335,764





(18)

%



(1)

%

Networking (2)

329,605





341,344





283,330





16

%



(3)

%

   Total Core

604,510





620,011





619,094





(2)

%



(3)

%

Other (3)

52,058





42,441





46,216





13

%



23

%

Total Revenue

$

656,568





$

662,452





$

665,310





(1)

%



(1)

%

 



Three Months Ended

% of Total

August 3,

2019



May 4,

2019



August 4,

2018

Storage (1)

42

%



42

%



50

%

Networking (2)

50

%



52

%



43

%

   Total Core

92

%



94

%



93

%

Other (3)

8

%



6

%



7

%

Total Revenue

100

%



100

%



100

%



(1) Storage products are comprised primarily of HDD and SSD Controllers, Fibre Channel Adapters and Data Center Storage Solutions.

(2) Networking products are comprised primarily of Ethernet Switches, Ethernet Transceivers, Ethernet NICs, Embedded Communication Processors, Automotive Ethernet, Security Adapters and Processors as well as WiFi Connectivity products.  In addition, this grouping includes a few legacy product lines in which we no longer invest, but will generate revenue for several years.

(3) Other products are comprised primarily of Printer Solutions, Application Processors and others.

For further information, contact:

Ashish Saran

Vice President, Investor Relations

408-222-0777

ir@marvell.com

Marvell is a leading provider of infrastructure semiconductor solutions. (PRNewsfoto/Marvell Technology Group Ltd.)

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/marvell-technology-group-ltd-reports-second-quarter-of-fiscal-year-2020-financial-results-300909318.html

SOURCE Marvell Technology Group Ltd.